The power of group online shopping hits China

One of the legions of tuangou wang (团购网) fans signing on for online deals -- and carefully navigating new pitfalls created by the sites.Most Chinese people are unaware of the U.S.-based groupon.com website. But the Chinese clones of the site, called 团购网 (tuangou wang), are quickly becoming some of the most popular online shopping platforms in China.

However, a number of problems are also emerging.

Chinese people have always believed that strength lies in numbers (人多力量大; more people, more strength). It's also an easy way to explain why Chinese clones of groupon.com that have sprung up this year have seen such success against established online shopping sites.

Especially for young Chinese, the demographic the sites are most popular with, tuangou wang provide better deals than traditional shopping models and offer a wider variety of products and services.

An example of the growth of tuangou wang is the recent move by Dianping.com, China’s largest dining and review site, which has moved on from its review-based model to offer a tuangou wang. Early in its launch, the site offered a movie ticket deal for 20,000 people. The deal sold out in a few hours assuring the new site, t.dianping.com, a place among China's group site heavyweights.

RenRen, a leading Chinese social network and Facebook clone, also launched its own group purchase site called Nuomi. Its success was easily measured when it only took hours for 152,095 users to buy an offer for two movie tickets, two soft drinks, a box of popcorn and one Häagen-Dazs ice cream.

Dianping.com and RenRen, although major players, are not alone in taking advantage of the tuangou wang trend. Other major portal websites such as Sohu, Sina and QQ.com have launched group purchasing deals for Chinese netizens.

Hu Yanping, director of Data Center of the China Internet (DCCI) said there are now 480 registered Chinese groupon websites, but the actual number is most likely well over 1,000 sites. With that number of Chinese groupon.com clones, as expected, the competition also rises.

Battle of tuangou wang clones

The barrier to entry into this online business in China is quite low. People.com.cn reported that building up a Chinese groupon clone costs no more than RMB 10,000 of initial capital investment. Investment is low as there’s little unique design, with many of the mainland sites creating almost exact copies of the original U.S.-based sites, with minor innovations for local consumers.

The only difference now seems to be who can provide the most attractive deal to the customers.

“I think the competition between Chinese groupon websites is not about the products they provided but the resources they have,” says Kai Hongyan, marketing manager of 58tuangou.com website. She predicts that in the next one to two years, a number of Chinese groupon sites will die off and only a few larger ones will remain.

I think the competition between Chinese groupon websites is not about the products they provided but the resources they have.— Kai Hongyan, marketing manager of 58tuangou.com website

Some people are already taking advantage of the deluge of sites, creating aggregator groupon websites, such as Letyo.com, which in addition to compiling deals from the dozens of tuangou wang, the platform allows customers to vote for the best deals, capitalizing on the social networking nature of the sites. Voting often serves as a way to weed out small and medium sized groupon sites, giving the larger sites more room to thrive.

A long way to go

The fierce competition is not the only concern regarding groupon sites. The biggest problem they face is the quality of the services provided by the merchants they work with.

Beijing Consumer Council has reported that they have received dozens of complaints regarding groupon services/products in August alone. The main complaint? False advertising by merchants on the sites. With such a large number of Internet users in China moving to tuangou wang, numbers can also backfire on the companies.

Netease recently reported that Nuomi.com had to compensate its customers RMB 500,000 because one of the merchants disappeared after the deal was sold out.

“It’s important to work with high quality vendors,” says Jeff Moger, CEO of Enjoy China that runs a similar online platform, enjoymeitian.com. “We say no to vendors all the time if we don't think they are a good vendor, with quality service.”

“There is a really important distinction to be made between the groupon business model and previous online sales models seen in China,” he continues. “Groupon is not a sales platform for products, here it has become a marketing platform for local and small business services.”

This means although a design from the United States might be easy to clone, the service they provide people might not be.

Now a freelancer writer, Zat Liu has been writing about Shanghai since 2003 when she started in "that's Shanghai" magazine.